"Clean" Dissolution Necessary for Ending Business Partnerships
Author: Keith Huggett
Dissolving a business partnership can be delicate and complicated, especially if everyone doesn’t agree on how things should proceed. Whether or not you’re the partner driving the dissolution, you have both obligations and options. This is one of those times when it pays to be fully informed.
Ensuring a “clean” dissolution is critical to avoid future problems, so you need to protect yourself. You want to be sure that no partner can continue to incur business debt and that you won’t be responsible for another partner’s debts and liabilities, especially if the business is continuing without you.
A good partnership agreement outlines how the dissolution should proceed.
If you have no agreement, or it doesn’t address ending the business partnership, it’s imperative that you consult an attorney and tax professional to ensure your interests are fully protected. Failure to do so could put you at risk, and you don’t want some court to decide what will happen, because things might not go your way at all.
Before you do anything, consider:
- The value of your business. Typically, each partner will receive assets and be responsible for liabilities according to their percentage of ownership.
- The potential ramifications of dissolution on any existing contracts or other agreements. You don’t want to be responsible for ongoing debts after the business partnership is dissolved.
There aren’t any specific tax ramifications to dissolving a business partnership, but each state’s regulations are a bit different. Even if you don’t need to file an official dissolution document, it’s a good idea to notify everyone – including official entities, vendors and other creditors -- that the business partnership has ended.
Failure to consider – and truly understand – all the nuances of business partnership dissolution could cost you dearly. Contacting one of our experienced professionals here at The Tax Office Inc. can help you sort out the financial details and ensure you’re fully protected – before, during and after your business dissolution.
